Thursday, 3 March 2011

Start of Production Shift to Cambodia and Bangladesh

AMSTERDAM, the Netherlands – Is it the start of a massive relocation of the production of bicycles destined for export to Europe? Reports are coming in on Strongman opening a new facility in Cambodia. As new EU trade rules are very favourable to OEM bike makers in countries like Cambodia and Bangladesh it’s likely that more are to follow.

It’s on the cover page of Bike Europe’s February edition that will arrive this week at the trade journal’s worldwide readership. The story heads with: “Are Bangladesh, Thailand, Cambodia, Vietnam the new Bike Production Bases?”

The fist major bike producer is doing just that with setting up shop in Cambodia where also A&J Worldwide Group operates production facilities for complete bicycles as well as for alloy frames.

The news on Strongman is not yet confirmed by the company’s HQ in Taiwan. But reliable sources indicate that the new and relaxed Generalised System of Preferences (GSP), which came into force January 1, 2011, urged the bike maker to open another facility there next to the ones it has in Thailand and Vietnam.

The new EU trade rules allow Cambodia and Bangladesh to export bicycles, parts and accessories to the EU 27 member states without the regular 14% import duty on complete bicycles and 4.7% import duty on P&A. Next to Cambodia and Bangladesh other countries in South East Asia are benefiting from the new GSP trade rules.

As production costs are quickly rising in in particular China it is expected that bike companies from this country will also shift production to Cambodia and Bangladesh. Manufacturers of shoes and textiles are already doing that and according to Bloomberg it’s a trend that will become significant in 2011.

This year, wages for workers in China are expected to rise 20% to 25%. In 2010, skilled Chinese workers saw even more yuan’s on their pay-checks compared to 2009 percentage-wise. In combination with the new and relaxed GSP trade rules for export to Europe, rising wages, together with higher prices for raw materials, more stringent environmental regulations, as well as increasing inflation rates are expected to lead to an exodus of bike and parts production away from China.